A seven-inch Amazon tablet priced at $250 or less will compete against inexpensive Android tablets such as Lenovo’s $199 IdeaPad A1 (pictured above) or the $249 Nook color

Amazon is reportedly launching its inaugural Android tablet in the fourth quarter of this year. If the back office chatter is true, the online retailer will first out a seven-incher followed by a larger form-factor device(s) early next year. The latest news has the seven-inch Kindle Tablet costing $250 or less. However, market sources polled by DigiTimeswarn of a lack of differentiation between Amazon’s dedicated Kindle e-readers and a seven-inch Android tablet:

Market observers are showing concerns as to how Amazon will differentiate its e-book reader market from that of its tablet while making profits for both after the company’s launch of the 7-inch tablet in fourth-quarter 2011. […] The sources also pointed out that Amazon may run a risk by releasing a 7-inch tablet when 10-inch models have mostly outperformed 7-inch competition over the past six months.

Shipping estimates have been revised and now call for a million units by the end of this month, “but the sources remain skeptical whether Amazon can meet its shipment goal of four million units in 2011”.

Now, about that differentiation comment. TechCrunch’s MG Siegler who saw prototypes described a seven-inch device without cameras. He said the screen used is a regular LCD as opposed to a color display utilizing electronic ink technology many people have been hoping for.

The fact Amazon could be marketing this thing under the Kindle moniker won’t help either, if true. On the flipside, there’s no reason as to why an Amazon-branded Android tablet tied to their all-encompassing cloud and shopping services would ever be confused with a family of dedicated and inexpensive Kindle e-readers.